Score SSSB Workbook June2012
Score SSSB Workbook June2012
Score SSSB Workbook June2012
But you dont have to go it alone. SCORE provides other great resources like Bank of America shares SCOREs goal to
mentoring and workshops, including the Simple Steps for Starting Your foster the success of small businesses and
Business workshop series on which this workbook is based. Attending this supports SCOREs mission to provide valu-
workshop, which includes one-on-one mentoring with a SCORE expert, will able information and guidance to new en-
provide you with a solid foundation for pursuing your business idea. Its all trepreneurs and established business
about helping you live your dream. owners. Through our relationship with
nearly 4 million small businesses, we work
Every day, SCOREs 13,000 mentors volunteer their time and expertise with our customers every day to offer guid-
to help small business owners like you with confidential, free business ance and the financial tools to help small
mentoring. Founded in1964, the SCORE Association has helped more business owners achieve their goals.
than 9 million entrepreneurs start, build, expand and protect their
small businesses. I applaud your entrepreneurial spirit and
wish you success in starting your business.
Use this workbook as the first step to making your startup dreams come
true. Then, take the next step and contact your local SCORE office to be
matched with a SCORE mentor who can help you every step of the way. You
can find the SCORE office nearest you by going to www.score.org/chapters.
Regards,
Robert Hilson
Bank of America
Small Business Executive
2 I INTRODUCTION I
3-14 I SECTION 1: READY TO START? I
3 myths and realities of entrepreneurship
The truth about business ownership
9 making it legal
The nuts and bolts of launching a new business
DREAM BIG!
EDITORIAL TEAM I
vice president of education: K. Jai Hokimi
Do you dream about starting director, marketing and Communications: Bridget Weston Pollack
project managers: Candice Stennett & Heather Hendy
a business? Youre not VOLUNTEER CONTRIBUTORS:
Americans share that dream. bergen county SCORE Peter Loder, John Sanchez
chester county SCORE James Schoonover
And yet, not everyone has colorado springs SCORE Ric Denton, Jerry Musselman, Gerald Smith
dayton SCORE Arnold Sandness
the courage to get started. fairfield county SCORE Michael Allocca, Lesley Apt, Elliot Baritz, Preston
Carnes, Jr., Patricia Duncan, Thomas Greenbaum, Ruth Kelley, France
But if youre reading this, LaFlamme, Patricia Muncy, Jonathan Naiman, Becca Nell, E. Michael
OMalley, Rebecca Ryan, Norman Sylvester, Diane Winston
you have already taken the ft. lauderdale SCORE Carlos Ayala, Tapan Chakrabarty, Arthur Donovan,
Michael Greenberg, Jack Hardy, Edward Joffee, Tom Petersen, Kendrick
your dream into reality. greater cincinnati SCORE Richard Johnston, Thomas Moon
greater phoenix SCORE Mary Ann Weiss, Andrew Beran, Neil Feola
houston SCORE Donald Doggett, George Holland, William Krause, Oliver
Mann, Raj Mashruwala, Bob Meisel, Irwin Miller, Al Reed, Dolores Zamora
Too many criticize dreamers like you proclaiming,
Dreamers only dream, doers do. But thats lancaster SCORE Louis Davenport, Gerard Glenn
wrong. You cant become a doer without first louisville SCORE Joseph Hatfield
having been a dreamer. manasota SCORE Douglas Barber, Gregory Hoffmann, Tom Latimer, Joseph
Pfeiffer, Jeanette Watling Mills
Dreams are the stuff entrepreneurs are made of. minneapolis SCORE Bruce Becker, Mort Harris, Edward Hennen, Loren Herbst,
Think about Steve Jobs, Bill Gates, Richard Branson, Marshall Jones, Randi Luoto, Thomas Schaefer, Daniel Shidla, William Wise
Oprah Winfrey, Sam Walton, Walt Disney, Mary monmouth SCORE R. Michael Sullivan, Robert Sullivan
Kay Ash. What do they have in common? They all northern nevada SCORE Judy Haar
started with nothing but a dream, and built princeton SCORE Marc Binder, William S. Litchman, Leon Petelle, Saleem Sufi
multimillion-dollar businesses. san antonio SCORE Carter Crews
san diego SCORE Jack Philbin
Obviously, dreaming alone isnt enough. You have to santa cruz county SCORE David Harken
do your homework, create a plan and take action. SCORE naples George Ahearn, Robert Anderson, Joseph Binder, Becky
You will have good days and bad ones. But dont get Bokrand, Frank Friend, Jeri Glueck, Chick Heithaus, Vincent Izzi, Carol
discouraged. As Walt Disney said, If you can dream Marlow, James Underwood, Karl Williams
it, you can do it. Always remember this whole thing SCORE santa fe & northern new mexico Nancy Geddes, William Moffett,
was started by a dream and a mouse. Richard Stranger
southern arizona SCORE Charles Higgins
Simple Steps for Starting Your Business is more than st. paul SCORE Gregory Boettner
just a guide to business ownership. Its really a
treasure valley SCORE C. Norman Beckert, Jeffrey Weeks
blueprint for helping make your dreams come true.
williamsburg SCORE Alan Wonsowski
design & layout Mark Kozak
Lots of people have good business ideasbut not all of them have the
characteristics needed to make their businesses succeed. Successful
entrepreneurs have the qualities listed below in common. Some of these
factors are inborn traits, others can be learned, and still others are
external and harder to control. The more of these factors you have on
your side, the greater your chances of success.
! Entrepreneurial qualities DO YOU HAVE THE FINANCIAL RESOURCES?
! Education or work experience in your Personal traits arent the only factor in business suc-
chosen industry cess. Starting a business costs money. To assess how
realistic startup is for you, begin by considering
! Strong work ethic
your personal budget. Add up:
! Effective time management skills
! Your total monthly cost of living
! Ability to multitask
! Areas where you can cut back
! Management skills
! Outstanding debt
! Willing to ask for help and advice
! Amount in savings
from others
! Amount needed to cover 6 to 18 months of
Lots of people ! Self-motivated
expenses (the average time before a new
! Resourceful business makes a profit).
have good
! Responsible
business ideas ! Organized
Also add up your startup costs, including:
! Tools or equipment
but not all of ! Persistent
! Leasehold improvements
them have the ! Decisive
! Licenses and permits
! Good health
characteristics ! Professional fees
! A supportive family
needed to make ! Initial inventory
! Working capital reserve fund
their businesses
succeed. Inadequate capital is a key reason busi-
nesses fail. Well discuss how to estimate
your startup costs and ways to obtain the
capital you need in more detail in Sec-
tion 4.
3 I buying a franchise I
advantages disadvantages
! As a franchisee you become part of a system with a ! You dont have as much freedom as an independent
well-known image and proven products or services. business owner.
! You have the marketing and sales power of the ! You must pay ongoing royalties and other fees.
franchisor behind you.
! You must sign a binding contract that limits your
! You get training and guidance from the franchisor. ability to exit the business.
! Youre part of a network and can turn to other ! The franchisors problemswhether financial, image or
franchisees for help. otherwiseare your problems, too.
4 I home-based business I
advantages disadvantages
! Working from home is convenient. ! Zoning or deed restrictions may prohibit home-based
businesses.
! You save money on commuting, dry cleaning, lunches
out and other daily expenses. ! Working from home can be isolating and lonely.
! You have a flexible schedule and can work when ! As a home-based business, you will have more
you want. difficulty finding financing.
! You could gain tax advantages since you could deduct ! Distractions from family or neighbors may make it
the portion of your home used for business. hard to work.
5 I nonprofit organization I
advantages disadvantages
! A nonprofit may qualify for government or foundation ! A nonprofit must focus on educational or charitable
grants. purposes and cannot profit those who created the
organization.
! Nonprofit status offers protection from liability for
directors and employees of the business. ! All profits remain within the organization.
! You can pay salaries to employees and consulting fees ! You must apply and qualify for 501c3 status or sales tax
to contractors. exemption.
6 I online business I
advantages disadvantages
! Startup costs are lower than with a brick-and-mortar ! Low conversion rateson average, only 2 percent of
business. visitors to an e-commerce site make purchases.
! You can do business with customers all over the ! Low barriers to entry for an online business mean there
countryor world. is more competition.
! Customers appreciate the convenience of accessing ! Visitors have high expectations for online businesses
your business 24/7. and less tolerance for problems.
! You have the flexibility to do business from anywhere, ! Being unable to touch merchandise can make
anytime. customers less likely to buy.
If you are currently an employee, youre probably responsible for one area
of businesssay, sales or accounting. As an entrepreneur, however, youll
wear many hats and be responsible for making sure all the components
of your business run smoothly.
NOT ONLY ARE YOU THE CEO OR PRESIDENT, BUT YOULL ALSO BE IN CHARGE OF:
administration answering phones, handling paperwork, office management and insurance issues
! Even if you were skilled in all these roles, you wouldnt have time to
handle all of them. Which are most important to your business? Which will you
focus on and which will you delegate? In what order of priority?
When it comes to the nuts and bolts of launching your new business,
there are three primary considerations:
# Choosing a legal business structure
$ Understanding government rules and regulations affecting your business
% Buying business insurance
the things that are important and the values my business will live by include: I
Get help from SCORE mentors. Visit www.score.org to find a mentor near you or get advice online.
STEP 2:
Examine Your
Personal Background
If you dont yet have a firm business
idea in mind, assessing your life and
work experience can help you come
up with one. If you do have a
business idea, review your past
experience to see how well it
supports your concept.
CONSIDER:
how do my skills and
experience fit with my idea?
Suppose you want to open a Get input on your
bakery. If you have worked in
food service or retailing, those business idea by
skills will help you in running your new business. If you
havent, you may need to learn more about these industries and
giving a SCORE
gain experience before you move forward. Mentor, friend or
how risk-tolerant am I? family member an
How does my experience
affect my startup risk?
elevator pitch (two
Past experience can minimize minutes or less)
the risk of starting a business.
Many people dream of opening explaining your
restaurants, but this industry has
a high failure rate. If you have no
business concept.
restaurant experience, your risk Have them ask you
will be even greater. Taking into
account your experience and the questions and offer
potential risk of your startup,
assess how comfortable you feel
honest feedback.
with moving forward. Hearing what
how can I modify my idea to someone else thinks
fit my experience?
If your idea seems too risky given
of your idea will help
your experience, consider an you clarify your
alternative. Using the example
above, for instance, a person with no restaurant experience ideas.
might consider a lower-risk business such as catering or a
cupcake shop.
STEP 3:
" growth trends: How fast can a business in this industry Another way to fine-
expect to grow?
" profitability: What kind of profit can you expect to make? tune your business
What are average margins in the industry? idea is by researching
" trends: What current and future trends (demographic,
economic, global) are affecting the industry? the industry you want
" life cycle: The chart below illustrates the concept of life
cycle. Ideally, you want to choose an industry thats either at an to enter.
early stage in its life cycle or in the reinvention stage. Choosing
an industry in the mature or declining stages makes it harder
to compete.
Maturity
n
tio
ven
in
Re
Rapid
pid Growth
h
Di
ng Slow Decline
sco
i
ag
ur
u r
ag
co
En
ing
Rapid Decline
Startup
! Trade associations also have valuable industry information. Search for associations online or consult the National
Trade and Professional Associations (NTPA) Directory, available at libraries or online at www.associationexecs.com.
! Risk Management Association (RMA) Annual Statement Studies, available at libraries or online at www.rmahq.org,
provide benchmark financial ratios for businesses in over 370 industries.
STEP 4:
Consider Your
Target Market
Who will your business serve? You cant be all
things to all people. To create a winning concept,
you need to narrow your market focus. Ask
yourself these questions: Who will your business
" channel position: Where in the sales chain serve?
will your customers fall? In other words, are you
selling to retailers, wholesalers, consumers or You cant be all
other businesses?
things to all people.
" number: How big is your potential market?
To create a winning
" income level/ability to pay: Are your concept, you need to
customers upscale or bargain hunters?
narrow your
" demographics: What are the demographic
characteristics of your market (location, company market focus.
size, sex, age, marital status and education level)?
! suppliers: What kinds of suppliers will you need? Are sources of supply readily available? How reliable are they?
! business risk: Is the product or service youre considering a short-lived fad, or does it have long-term potential? Are
there legal or environmental factors that could threaten your business, such as pending legislation that might restrict
your operations?
BUSINESS IDEA I
Describe your product or service idea, including features, benefits and business model.
PERSONAL BACKGROUND I
What aspects of your skills and work experience will translate to your business?
INDUSTRY PROFILE I
Note key facts about the industry you are entering, including growth trends, profitability and life cycle.
TARGET MARKETS I
Describe who will purchase your product or service, including the market size and their demographics,
lifestyle and buying habits.
Get help from SCORE mentors. Visit www.score.org to find a mentor near you or get advice online.
TRACKING TRENDS I
What factors are shaping your customers' behavior? The following sources will help you keep on
top of trends.
! newspapers: Since trends typically start in big cities and trickle down to other areas, read the leading newspapers
from urban areas, such as The New York Times.
! periodicals: Read the magazines your target market readswhether thats Road & Track or Tiger Beatto keep up
with what matters to them.
! television: Popular shows are often good indicators of consumer trends. For example, the growth of cooking shows in
the past decade has been matched by consumer spending on gourmet foods, home entertaining and tools for home
cooking.
! internet: Set up Google Alerts for topics youre interested in, or visit Google Trends (www.google.com/trends) to see
what the most popular searches are at any given time.
Example
TARGET Local
MARKETS gardeners
CHANNEL
POSITION Consumer
KEY
DEMOGRAPHICS High-end
Local reputation,
BUYING
HABITS pricing,
availability
Get help from SCORE mentors. Visit www.score.org to find a mentor near you or get advice online.
Make copies of the Competitor Data Collection Plan on the next page and fill out a copy for each competitor.
Example
Cindys Garden
BUSINESS > Supply
PRICE High
FEATURES Upscale
SIZE/ Local,
PROFITABILITY high margins
MARKET Premium
STRATEGY products
Get help from SCORE mentors. Visit www.score.org to find a mentor near you or get advice online.
I Spy
You cant learn everything you need to know
about competitors from publicly available
sources. Collecting critical information also
requires some sleuthing. Heres where to get
the scoop:
Complete the Competitive Comparison Worksheet on the next page to see how your business concept
compares with your key competitors.
BENEFITS/
FEATURES
PRICING
SALES
SIZE/MIX
MARKET
STRATEGY
BUSINESS
MODEL
LOCATION
" Rate each characteristic for your business and for your competitors.
" Use plus (+), neutral (0) or negative (- ) for each characteristic based on how you think your customers would perceive them.
" Ratings estimate should compare all the businesses, with average receiving a rating of 0.
Get help from SCORE mentors. Visit www.score.org to find a mentor near you or get advice online.
Setting and
Your price is the
Adjusting Prices
strongest signal to the
Pricing isnt a one-time task, but an ongoing effort.
As your new business gets off the ground, youll customer of your
probably have to tinker with your prices until you product or services
find the right formula that increases both sales
and profits. Youll also need to adjust perceived value and
prices as market conditions change
and as your business grows. Here position in the market. A
are the steps to follow at each stage higher price leads
of the game.
customers to have
SET YOUR INITIAL PRICE:
higher expectations. A
! Consider the costs of making your
product or providing your service, plus
lower price could lessen
profit. your product or services
! Know the competitions price and whether perceived value.
you will match it, beat it or charge more.
UNDERSTANDING CHANNELS I
Channels are how products and services are distributed to the customer. Below are
common channels businesses use:
! direct sale to business (b2b): You may sell products or services directly to businesses.
! direct sale to consumer (b2c): You may sell products or services directly to individuals.
! sale to distributor who sells to retailer: If you manufacture or import a product, you may sell it
to an agent or middleman, who then sells it to retail outlets.
! internet sales: You may sell to either businesses or consumers online (e-commerce).
! associate or affiliate networks: You may sell your product through a network of associates
(offline) or affiliates (online) who keep part of the profits in return for facilitating the sale.
Understanding the various channels helps you see market segments you might have missed,
identifies multiple market segments you can target, helps you set prices in such a way as to avoid
channel conflicts, and helps you develop your marketing communication strategy.
To compare potential market segments, fill out the Target Market Comparison Worksheet on the next page.
Example
COMPETITION Limited
FITS ME Yes
" Rate each market segment that you are thinking about targeting.
" Use plus (+), neutral (0) or negative (- ) for each factor.
" Use the results to determine which markets have the most promise (that is, positives) for your business.
Get help from SCORE mentors. Visit www.score.org to find a mentor near you or get advice online.
Fill out the Product and Service Description Worksheet on the next page.
PRODUCT/SERVICE
IDEA
SPECIAL BENEFITS
UNIQUE FEATURES
SUPPLIERS
INTELLECTUAL PROPERTY/
SPECIAL PERMITS
Get help from SCORE mentors. Visit www.score.org to find a mentor near you or get advice online.
Use the Marketing Message Worksheet on the next page to write your marketing message.
Using the marketing message for Anns Nursery on page 33 as an example, fill in the elements below that apply to your business.
BUSINESS NAME
PRODUCT/SERVICE
OFFERED
TARGET MARKETS
UNIQUE FEATURES
CUSTOMER BENEFITS
MESSAGE: " Write your marketing message, incorporating the elements mentioned above.
Get help from SCORE mentors. Visit www.score.org to find a mentor near you or get advice online.
Create your own Marketing Strategy Chart by filling in the worksheet on the next page.
Example
TARGET MARKET
BY Local Retailer
CHANNEL >
Get help from SCORE mentors. Visit www.score.org to find a mentor near you or get advice online.
To get a better idea of your startup expenses, complete the Estimated Startup Costs Worksheet on the next page.
administrative expenses
Corporate Fees, Permits and Taxes
Real Estate and Utility Deposits
Legal and Accounting Fees
Insurance
Salaries and Wages
Payroll Taxes
Benefits
Website Maintenance
Office Supplies
Other
TOTAL ADMINISTRATIVE EXPENSES $
opening inventory
Category 1
Category 2
Category 3
TOTAL INVENTORY $
advertising/promotional expenses
Advertising
Website Development
Signage
Printing
Travel, Meals and Entertainment
Other/Additional Categories
TOTAL ADVERTISING/PROMOTIONAL EXPENSES $
other expenses
Other Expense 1
Other Expense 2
TOTAL OTHER EXPENSES $
working capital
Get help from SCORE mentors. Visit www.score.org to find a mentor near you or get advice online.
! Hairdresser (service)
As a startup,
! Computer repair (hours)
forecasting sales units
Of course, a single business may
also have multiple categories. means making some
For example, you might open a
store that offers computer
guessesbut they
repair (which is sold in hours) should be educated
but also sell computer
hardware and peripherals guesses. Use the data
(which are products).
you gathered in your
Try to figure out what average unit of sales market research,
or package of goods and services customers
will buy. If you sell your product competitive research
or service in different ways or
have more than one type of and business plan. Be
customer, you may need to break sure to write down the
this down into three or four
different types of transactions. basis for your
Suppose you will be selling computer assumptions so you can
equipment and IT services, for
example. You need to figure out what
remember how you
your average customer is likely to came up with the
purchase. Will your average customer
be an individual (perhaps buying one numbers when you
computer) or a business (probably
buying several computers)? The average
revisit your financial
IT consulting or service job might take plan later.
two hours (for an individual) or two days
(for a business).
! 31 to 60 days
business. Visit
! 60 or more days www.score.org/mentors
Know what your industry norms are, and be
today to find
realistic about when you can expect to get a mentor.
paid. Sometimes you can speed up payment
by offering discounts or credit card payments,
but if you are dealing with government or cor-
porate clients, this may not be possible.
In addition to creating a
financial plan as you start
your business, you will need to
understand and use financial
statements on a regular basis
as your business grows. Even
if you have an accountant, its
important that you have at
least a basic knowledge of
these financial statements
and how to use them.
A good accountant
does far more
There are three primary financial statements
that are used by all types of business, large or than just keep your
small, and are governed by GAAP (Generally
Accepted Accounting Principles) rules. Taken
books and prepare
together, these financial statements create a your tax returns.
picture of your businesss financial situation at
any moment in time, and also help you project Look for an
into the future.
accountant who
1. income statement: Showing how much can be an ongoing
profit or loss is generated, the income
statement helps you manage overhead expenses advisor. A good
and shows you how long it will take to reach
profitability. working relationship
2. balance sheet: Showing assets (what is
with your
owned), liabilities (what is owed) and your accountant will
equity or net worth, the balance sheet helps you
manage inventory, accounts receivable and help you build a
accounts payable.
successful business.
3. cash flow statement: Showing the funds
coming into and going out of your business, the
cash flow statement shows whether you have
adequate funds to run and grow the business.
1. INCOME STATEMENT
Also called the income and expense
statement or profit and loss (P&L)
statement, the income statement is the
financial picture of business results over
a period of time.
.%
-
-
r-
y-
g-
v-
y-
r-
c-
t-
AR
p-
%
%
%
%
%
%
%
%
%
%
%
%
IND
Jan
%
Feb
Ma
Ap
Ma
Jun
Jul
Au
Se
Oc
No
De
YE
Revenue (Sales)
Category 1
Category 2
Category 3
Category 4
Category 5
Category 6
Category 7
Total Revenue (Sales)
Cost of Sales
Category 1
Category 2
Category 3
section 4: Financial Matters
Category 4
Category 5
Category 6
Category 7
Total Cost of Sales
Gross Profit
Expenses
Salary expenses
Payroll expenses
Outside services
Supplies (office and
operating)
Repairs and
maintenance
Advertising
Car, delivery and travel
Accounting and legal
Rent
Telephone
Utilities
Insurance
Get help from SCORE mentors. Visit www.score.org to find a mentor near you or get advice online.
Other expenses (specify)
Misc. (unspecified)
Net Profit
47
Understanding and Using Financial Statements section 4: Financial Matters
2. BALANCE SHEET
The balance sheet is a crucial tool in your
companys financial management. By looking at
your balance sheet, you are able to see a snapshot
of your companys finances at a single point in
time. The balance sheet highlights:
! What you own (assets)
Beginning Projected
as of / / as of / /
Assets
Current Assets
Cash in bank $ $
Accounts receivable
Inventory
Prepaid expenses
Other current assets
Total Current Assets $ $
Fixed Assets
Machinery & equipment $ $
Furniture & fixtures
Leasehold improvements
Land & buildings
Other fixed assets
(LESS accumulated depreciation on fixed assets)
Total Fixed Assets (net of depreciation) $ $
Other Assets
Intangibles (intellectual property, trade secrets) $ $
Deposits
Goodwill
Other
Total Other Assets $ $
TOTAL Assets $ $
Long-term Debt
Bank loans payable $ $
Notes payable to stockholders
LESS: Short-term portion (due within 1 year)
Other long-term debt
Total Long-term Debt $ $
Total Liabilities $ $
Owners' Equity
Invested capital $ $
Retained earnings - beginning
Retained earnings - current
Total Owners' Equity $ $
Get help from SCORE mentors. Visit www.score.org to find a mentor near you or get advice online.
jan feb mar apr may jun jul aug sep oct nov dec totals
cash inflows
Income From Sales
Accounts Receivable
cash outflows
Investing Activities
Cost of Sales
operating activities
Salaries and Wages
Taxes
financing activities
Loan Payments
Dividends Paid
cash flow
Get help from SCORE mentors. Visit www.score.org to find a mentor near you or get advice online.
Other Important
Financial Tools
In addition to financial statements, two other key
financial tools can help you assess how well your
business is doing financially.
1. BREAKEVEN ANALYSIS
The breakeven point is the point Financial planning can be
at which your gross margin (sales
minus cost of sales) equals your intimidating. A SCORE
fixed operating expenses. You can
calculate your breakeven by dividing
mentor can guide you
Total Operating Expense by Gross through the process.
Margin (as a percentage of sales).
Here is the formula: GET ADVICE ONLINE:
www.score.org/mentors
Breakeven Sales = Total Operating
Expense / Gross Margin Percent FIND A SCORE OFFICE
Think of this as an algebra problem and
NEAR YOU:
solve for X (breakeven sales). If actual www.score.org/chapters
sales are less than the breakeven amount,
you may need to recalculate how you plan E-MAIL SCORE:
to run the business. Most startups expect to
reach the breakeven point in the first 6 to 18
[email protected]
months of operation. SEARCH THE SCORE
2. BENCHMARKING AND FINANCIAL RATIOS WEBSITE:
Benchmarking means comparing your companys www.score.org
financial information to the same information from
similar companies or to industry norms or ratios.
Benchmarking is a great way to test the feasibility of
your financial plan.
Bank Loans:
What You Need to Know
When reviewing your loan application,
lenders look for good credit, a feasible
business plan, adequate owner equity and
sufficient collateral. Perhaps most
important, they look for management Your credit score is crucial
expertise and commitment. What real-
world experience do you and your key to your startups financial
partners or employees have in managing success. Since your new
this type of business?
business does not yet have
Here is what youll need for a bank
loan application: a track record, banks will
! Cover letter of introduction consider your personal
! Summary of financial needs credit score in making
! Business financial statements (3 years) lending decisions or opening
! Business tax returns (3 years) business accounts. Vendors,
! Projected cash flow statement (12 months)
suppliers and potential
! Collateral (both business and personal)
partners will also assess
! Personal tax returns (3 years)
your personal credit score
! Personal financial statements
! Rsum
before extending credit
or doing business with you.
The lender will also ask:
A FICO score of 700 or
! Are there any legal claims, liens or judgments
against you or your business? greater is desirable. You
! Are any assets pledged? can get a free personal
! Are your tax returns and payments up to date? credit report from
! Do you have any life insurance? If so, what is
the face value or the cash value?
www.annualcreditreport.com.
! What are your monthly household income
and expenses?
1. CHARACTER
! Trustworthiness
! Personal and business credit history
! Integrity
! Quality of references
! Experience in the business
! Impression you make on the lender or investors
2. CAPACITY
! Ability to repay the amount borrowed
How much money will
! How soon you can generate positive cash flow
! When you will show a profit lenders expect you
! How large the profit will be to put into your
! Whether the profit can be sustained
business? A good rule
3. CAPITAL of thumb is that
! The money you have personally invested
! Your ability to save money and accumulate growth in owners should
owners equity contribute a
4. COLLATERAL minimum of 25 to 30
! Secondary source of repayment
percent of the
! Third-party guarantee
! Tangible assets required capital.
! Property Banks wont finance
! Equipment
! Accounts receivable
100 percent of your
! Inventory business; they seek a
5. CONDITIONS risk cushion and
! Terms of the loan, including: want to know that
Intended purpose
Amount requested
you, too, have skin in
Length of loan the game.
! Local economic climate of industry
! Local economic climate of business
6. CASH FLOW
! Where the money to repay the debt will come from
! How the loan proceeds will be used
Sources of Capital
Although bank loans are typically the first form of
financing most new business owners think of, they
are not the only way to fund your startup. Heres an
overview of your options.
TYPES OF FINANCING
EQUITY DEBT
Does not signify ownership; it is
Signifies ownership and includes: borrowed money that must be paid
back, and includes:
GO OR NO-GO?
! Do you move on to the next step of launching
your business?
Complete the Business Concept Feasibility Worksheet on the next page to help you make your Go or No-Go decision.
total score
Congratulations! It seems that you feel ready to move forward. You know your product/service can sell,
you understand what it will take to start, and you feel ready to tackle the challenge. SCORE can help you
40-50 turn your entrepreneurial dream into reality. So make sure to schedule your next meeting to start with
the right advice.
20-39 You are in luck! It seems that you are very close to making a decision, and SCORE can help you fill the gaps.
Think about the topics you have the lowest points in. Make sure to discuss your results with a SCORE
0-19 mentor so you can get some additional advice.
NOTES
Get help from SCORE mentors. Visit www.score.org to find a mentor near you or get advice online.